The “good” news this evening is that Baoding Tianwei Baobian Electric Co (TBE), the company which as recently as two days ago was rumored to be the second “imminent” Chinese corporate bond default which sent copper to multi year lows, has issued a statement that it will not default on its upcoming interest payment (due July 11th – so how the delisted company is convinced it will have enough cash four months from now is a mystery). The “bad” news is that markets don’t care. There is a slight whiff of positivity in Copper futures but aside from that, weakness continues in China’s corporate bond and stock market. Simply put, the market gets it – this is no longer about the next idiosyncratic bond (or trust) to default; this is about Xi’s renewed confidence in efforts to ‘clean up’ the mounting local government and corporate debts and shrink the shadow-banking bubble. This is systemic, and the markets know it.
Hooray…
- *BAODING TIANWEI SAYS CO. TO PAY BOND INTEREST ON TIME
Copper was excited momentarily…
TBE statement: (link)
Co. will pay bond interest for due July 2014 on time, according to a statement to the Shanghai stock exchange.
So to be clear, TBE is promising that in 4 months it will pay interest on a bond that it currently has zero liquidity to pay, is losing money, and is in an industry that the government has specifically targeted for ‘normalization’…
BofA explains why is it not a big piece of news in China?
To the Mainland China media, the delisting of TBE bonds is not a big piece of news, in our view, because TBE was already in a law suit on its other debt, and the “new energy†sector has been in deep trouble anyway (as we have seen with Wuxi Suntech and Chaori). TBE is in the business of making power transmission equipment, but in recent years has heavily invested in the ill-fated new energy sector which has resulted in two straight years of losses with the losses in 2013 surging to RMB5.2bn. TBE’s Shanghai Stock Exchange listed bond was issued in 2011, with principal at RMB1.6bn, a 5.75% yield and 7-year tenor. TBE’s stock price has already fallen by 15% this year. TBE’s controlling shareholder is Tianwei Group, which is a central-government owned company.
We do see a significant rise in bond and trust loan defaults We believe the chance of corporate bond and trust loan defaults will rise significantly in 2014 as a more confident President Xi Jinping and Premier Li Keqiang will aim to seriously clean up mounting local government and corporate debts.
